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Company Asset As Security (Types of Charges (Disadv of floating charge…
Company Asset As Security
Types of Charges
FIXED CHARGE
charged to a specific asset over any
FREEHOLD/ LEASEHOLD PROPERTY,
any
PLANT & MACHINERY
Bank is assured: Comp.
not allowed
to deal w/ the assets secured by the fixed charge (unless approved by bank)
bank has absolute priority over the sale proceeds.
Fixed charge is invalid of the comp. goes into liquidation within 3 months of its creation (shown that chargee is fraudulently preferred by comp.
FLOATING CHARGE
A charge over
both
present & future assets; assets are constantly changing - course of biz and until the holder takes some steps to enforce the security. company can carry on its biz in the usual way
Crystallisation of Floating Charge
-by occurrence of a specific event, specified in debenture
Eg: Comp.
ceases
to carry on biz, goes into
liquidation
, called to
repay
its borrowings & defaults, debenture holder
exercise rights
,
petition passed
for the winding up of the company,
breach
of
covenants
,
security in jeopardy
Adv of floating charge
effective & comprehensive , allow flexibility - charge covers entire undertaking of comp while comp are free to deal w assets
allows for immediate action. Receiver can be appointed to take control and continue trading
receiver also able to sell entire biz (keep profitable parts and preserve employment)
Disadv of floating charge
Charge is VOID if comp. is insolvent
Claims of preferential creditors
Not all stocks are subjected to the charge
Assets of comp. maybe sold off
Assets subject to the floating charge, may be seized be creditors/ landlords
A party who takes a specific charge, gain priority over the holder of a floating charge
Potential problem for the supplier
Buyer may go into liquidation while amount owing on the goods remains unpaid
Supplier have to prove obligations due on an unsecured basis, may get little or nothing.
Protection for the supplier
Advised supplier advances its goods to the buyer on a
'retention of title' / 'ROMALPA basis'
Means- buyer if liquidated prior to paying for the goods, the supplier can claim back his goods.
Priority of charge
Fixed & Floating
charges rank according to order of creation
Fixed charge priority over floating charge unless Floating incorp.
PARI PASSU
A receiver can: carry on the co. biz & realize the co. asset's w a view to collecting the max amount possible to discharge co indebtness
Cancellation of charge: customer repaid, it is advisable for cust. to request charge to be deleted from the records maintained w ACRA